DEUTSCHE BANK: Here's a picture-perfect layout of how stocks can surge 12% this year

Deutsche Bank's chief global strategist Binky Chadha outlined in
a note Wednesday how stocks, which have been going nowhere this
year, can break out to surge 12% by the end of 2016.

He says the tight range stocks have traded in since last January
doesn't reflect stocks being overvalued. Instead, his
team's model suggests stocks are now 4% cheap.

But for the 12% rally to happen, the most
important thing is that economic data continues to top Wall
Street's expectations without any "new shocks" to the financial
system.

Here's Chadha:

Absent new shocks, a full positive data surprise phase
would see equities break well above the range, though we do
not see this happening until after the buyback blackout
period around earnings ends in the third week of
April. With data surprises already pointing to the
S&P 500 at 2100, the lead from the dollar's moves over the
last 3 months suggests positive surprises will continue.

Deutsche
Bank

On Thursday, the S&P 500 opened at 2,025.10, down by less
than 1% year-to-date.

To take the index up to 2,300, Chadha says economic
indicators of consumer sentiment and confidence need to catch up
to the hard data. Confidence has been shaken because of the
recent growth scare, but the "hard data" still point towards a
recovery.

Regional manufacturing indicators, for example, have recently
improved, and the slowdown in the dollar's climb could ease its
drag on the sector nationally.

Also, the dollar's tamed rally would ease pressure on the
Chinese renminbi, which is positive for Chinese economic
growth. China has been a major scare factor for markets in recent
months.

Chadha also believes that the earnings decline should bottom in
Q1, as the dollar, once again, eases its drag on multinational
companies.

But even if earnings declines continue, Chadha says markets would
look right through to the economic data if they continue to top
expectations.

A rebound in the services sector should also be positive for
stocks. On Thursday, Markit's preliminary
purchasing manager's index (PMI) for March showed that the
sector improved after a dip into contractionary territory in
February, although the pace of new orders was still weak.